Final Results

Herald Investment Trust PLC 12 February 2004 PRELIMINARY STOCK EXCHANGE ANNOUNCEMENT HERALD INVESTMENT TRUST plc Results for the year to 31 December 2003 12 February 2004 BOARD STATEMENT CHAIRMAN'S STATEMENT There has been a satisfactory bounce in the assets of the Trust this year from the oversold position a year ago. Overall the fully diluted net asset value has risen 77.4%. The borrowings of £20m taken on in November 2002 were an indication of the Manager's belief that markets had become too cautious. The borrowings were taken on at 2.1% in US$, at an exchange rate of $1.56 so there was the additional benefit of hedging some US assets against $ weakness. The assets weakened again in the first quarter reflecting pessimism about the Gulf War, but HIT's assets bottomed 5% higher than the Autumnal low. This provided an opportunity to borrow a further £10m at 1.85% once shareholders had approved an increase in borrowing limits at the Annual General Meeting, and buy assets at very cheap rates. However, by April it was clear that liquidity was limited and the market was overdue a strong rally. Although there has been a widespread rerating the fund has outperformed the most relevant indices. In the UK the total return was +80.3%, whereas Techmark 100 grew 56.4% (59.5% total return), and the Hoare Govett Smaller Companies Index grew 38.5%, albeit a weighted basket of the most relevant sectors was +57.8%. In the US, as in the UK, small companies outperformed large and the Russell 2000 Technology index grew 63.4% in $, whereas the HIT US portfolio grew 78.9% in $. The Asian and European performances were somewhat less, but account for a much lower proportion of the assets. It is particularly pleasing that the fund was able to outperform the relevant technology and media indices in the declining markets of the previous two years, and outperform the rising market in 2003. This reflected the move from c.£45m cash and gilts at the start of 2002 to a geared position at the end, and the purchase of a number of very small more highly leveraged stocks. Whilst much of the bounce was from technically oversold positions, there has been growing evidence of economic recovery. Businesses have reverted to more sound principles, and profits have become fashionable again after the alarming period in the boom around the turn of the century when the focus moved higher up the profit and loss account to EBITDA (earnings before interest, tax, depreciation, and amortisation) and revenues. Recovery in the US is more evident with an astonishing 8% GDP growth in Q3. Furthermore there is margin expansion as cost benefits are coming through, leading to some strong profit improvements. There are already electronic component shortages, and certain semiconductors are in short supply. Even the telecoms sector which experienced the biggest boom and bust is seeing improvements with a stronger statement from Nokia. The economy has to remain strong for further progress from current levels. In the short term this is probable, albeit there are worrying structural flaws in the world economy such as the level of consumer debt in the Anglo-Saxon world and the US trade deficit. The weakness of the $ will have ramifications, and will not help a number of the UK holdings. The Trust's revenue profitability has been adversely affected by the reduced interest income, and indeed the interest payable. The objective of the fund has always been capital appreciation, and we are unrepentant about the income cost, because the capital account has so clearly benefited. In conclusion, the year has been satisfactory. We remain of the view that the area of small young companies can outperform over the long term, but similar strength cannot be expected this year. Colin McCarthy has intimated that he will retire after the Annual General Meeting in April. I would like to express my thanks for his valued contribution to the Company over the past 10 years. Board composition is being reviewed in the light of the revised Combined Code on Corporate Governance. The Company's Articles of Association give shareholders the right to vote at the Annual General Meeting on 14 April 2004 as to whether the Company should continue to operate as an investment trust. Herald has been one of the best performing trusts over 10 years and the Directors have every confidence that satisfactory performance should continue. Accordingly, the Directors intend to vote their own shareholdings in favour of the resolution for the Company to continue as an investment trust. I encourage shareholders to give due consideration to this important matter and express their wishes by casting their vote. Also part of the business at the Annual General Meeting is a resolution to increase the aggregate annual limit of Directors' fees from £70,000 to £100,000. The current Directors' fees total £70,000 and consequently there is no scope for increase and with the extra burdens placed on Directors nowadays it is likely that fees will generally continue to rise. It is not the intention that Directors' fees should increase to this limit in the forthcoming year but merely to provide flexibility for modest increases or to add to the Board number. Martin Boase Chairman 11 February 2004 Statistics and Performance Report At inception At At Performance Performance 16 February 1994 31 December 2002 31 December since since inception 2003 31 December 2002 Basic NAV per share 98.7p+ 210.2p 365.4p +73.8% +270.2% Diluted NAV (FRS14) 98.7p+ 206.7p 365.4p +76.8% +270.2% Fully diluted NAV per 98.7p+ 206.0p 365.4p +77.4% +270.2% share Share price 90.9p 177.0p 325.3p +83.8% +257.9% Warrant price 45.5p 79.0p - - - FTSE 100 Index 3,417.7 3,940.4 4,476.9 +13.6% +31.0% HGSC Index (ext. cap 1,750.0 1,693.9 2,346.7 +38.5% +34.1% gains ex investment co's) Russell 2000 (small 83.2* 49.6 72.9 +47.0% -12.4% cap) Technology Index (in sterling terms) + 100p is shareholders' subscription price before launch costs of 1.3p. * 9 April 1996, being the date funds were first available for international investment. Portfolio Performance for the 12 months to 31 December 2003 Equity markets Performance (total return) UK +80.3% Europe ex. UK +52.5% Americas +60.8% Japan +44.0% Asia Pacific ex. Japan +33.9% - ends - For further information please contact: Ms Katie Potts, Manager Herald Investment Trust plc 020 7553 6300 Baillie Gifford & Co. Secretaries 0131 275 2000 The following is the unaudited preliminary statement for the year to 31 December 2003 which was approved by the Board on 11 February 2004. The Directors of Herald Investment Trust plc are recommending to the Annual General Meeting of the Company to be held on 14 April 2004 the payment of a final dividend of 0.30p net (0.85p net last year) per ordinary share for the year ended 31 December 2003. HERALD INVESTMENT TRUST plc STATEMENT OF TOTAL RETURN (unaudited and incorporating the revenue account*) for the year ended for the year ended 31 December 2003 31 December 2002 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gains/(losses) on investments - 136,680 136,680 - (95,509) (95,509) Exchange difference on loans - 3,169 3,169 - 582 582 Currency gains/(losses) - 100 100 - (146) (146) Income (note 1) 3,882 - 3,882 3,539 - 3,539 Investment management fee (2,727) - (2,727) (2,470) - (2,470) Other administrative expenses (259) - (259) (262) - (262) Net return before finance costs and taxation 896 139,949 140,845 807 (95,073) (94,266) Finance costs of borrowings (591) - (591) (149) - (149) Return on ordinary activities before taxation 305 139,949 140,254 658 (95,073) (94,415) Tax on ordinary activities (29) - (29) (31) - (31) Return on ordinary activities 276 139,949 140,225 627 (95,073) (94,446) after taxation Ordinary dividend payable (263) - (263) (718) - (718) (note 2) Transfer to/(from) reserves 13 139,949 139,962 (91) (95,073) (95,164) Return per Ordinary share (note 3) Basic 0.32p 161.39p 161.71p 0.74p (112.55p) (111.81p) Diluted (FRS14) 0.32p 0.73p Dividend per Ordinary share 0.30p 0.85p * The revenue column of this statement is the revenue account of the Company. All revenue and capital items in the above statement derive from continuing operations. HERALD INVESTMENT TRUST plc SUMMARISED BALANCE SHEET at 31 December 2003 (unaudited) 31 December 2003 31 December 2002 £'000 £'000 NET ASSETS Investments at market value 331,497 191,988 Net liquid assets 18,712 7,912 Total assets (before deduction of bank loans) 350,209 199,900 Bank loans (note 4) (29,325) (22,310) 320,884 177,590 CAPITAL AND RESERVES Called-up share capital 21,952 21,119 Capital reserves 296,871 154,423 Revenue reserve 2,061 2,048 EQUITY SHAREHOLDERS' FUNDS 320,884 177,590 Net asset value per ordinary share (note 5) Basic 365.44p 210.23p Diluted (FRS14) 365.44p 206.68p Fully diluted 365.44p 206.04p Ordinary shares in issue 87,807,348 84,475,145 DISTRIBUTION OF ASSETS at 31 December 2003 (unaudited) 31 December 2003 31 December 2002 % % Equities: United Kingdom 63.4 62.9 Continental Europe 6.0 6.4 Americas 17.8 18.2 Japan 0.6 0.5 Asia Pacific 6.9 8.0 94.7 96.0 Net liquid assets 5.3 4.0 Total assets (before deduction of bank loans) 100.0 100.0 HERALD INVESTMENT TRUST plc SUMMARISED CASH FLOW STATEMENT (unaudited) for the year ended for the year ended 31 December 2003 31 December 2002 £'000 £'000 £'000 £'000 NET CASH INFLOW FROM OPERATING ACTIVITIES 827 790 NET CASH OUTFLOW FROM SERVICING OF FINANCE (580) (84) FINANCIAL INVESTMENT Purchase of investments (77,543) (99,858) Sale of investments 74,274 69,514 Currency movement 100 (146) NET CASH OUTFLOW FROM FINANCIAL INVESTMENT (3,169) (30,490) EQUITY DIVIDEND PAID (718) (718) NET CASH OUTFLOW BEFORE FINANCING (3,640) (30,502) FINANCING Issue of Ordinary shares 3,332 22 Loans drawn down 37,902 20,000 Loans repaid (27,718) - NET CASH INFLOW FROM FINANCING 13,516 20,022 INCREASE/(DECREASE) IN CASH 9,876 (10,480) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase/(decrease) in cash in period 9,876 (10,480) Increase in bank loans (10,184) (20,000) Exchange movement on loans 3,169 582 MOVEMENT IN NET DEBT IN PERIOD 2,861 (29,898) NET (DEBT)/FUNDS AT 1 JANUARY (13,547) 16,351 NET DEBT AT 31 DECEMBER (10,686) (13,547) HERALD INVESTMENT TRUST plc NOTES 31 December 2003 31 December 2002 £'000 £'000 1. Income Income from investments and interest receivable 3,875 3,521 Other income 7 18 2. The proposed final dividend will be paid on 20 April 2004 to all shareholders on the register at the close of business on 26 March 2004. 3. Return per ordinary share Revenue return 276 627 Capital return 139,949 (95,073) The basic return per ordinary share is based on the above totals of revenue and capital and on 86,711,829 ordinary shares (2002 - 84,468,090) being the weighted average number of ordinary shares in issue during the year. The diluted revenue return per ordinary share is calculated on the revenue return above and using the weighted average number of warrants in issue during the year adjusted by the difference between the average price of the ordinary shares during the year and the subscription price of 100p, to give a weighted average of 87,358,935 (2002 - 86,300,599) shares. 4. The Company has arranged multi-currency loan facilities with The Royal Bank of Scotland plc and ING Bank N.V. The facilities with the Royal Bank of Scotland plc comprise a five year £3 million facility which expires on 7 January 2004 and a 364 day £20 million facility which expired on 31 October 2003. The ING Bank N.V. facility comprises a 364 day £30 million facility which expires on 26 October 2004. At 31 December 2003 the Company had borrowings totaling £29,325,000 (US$47,350,000 and yen 551,550,000) (2002 - £22,310,000 (US$ 31,268,000 and yen 551,550,000)). 5. Net asset value per ordinary share is based on net assets of £320,884,000 (2002 - £177,590,000) and 87,807,348 (2002 - 84,475,145) ordinary shares, being the number of ordinary shares in issue at each date. When the warrants were in existence the diluted net asset value per ordinary share was calculated in accordance with Financial Reporting Standard 14 (FRS 14). At 31 December 2002 this was based on net assets of £177,590,000 and on 85,924,748 ordinary shares, being the number of ordinary shares in issue at the year end plus the notional number of ordinary shares that would have been issued for no consideration using the share price of 177.0p at that date. The fully diluted net asset value per ordinary share was calculated on the assumption that the warrants in issue were fully exercised at 31 December 2002 at 100p each, resulting in net assets of £180,922,000 and 87,807,348 ordinary shares in issue. The final date for the exercise of warrants was 30 April 2003 and in accordance with the terms and subject to the conditions of the warrants 3,332,203 ordinary shares were allotted in respect of warrants on which the subscription rights had been exercised. At 31 December 2003 there were no warrants in issue (31 December 2002 - 3,332,203). 6. At the Annual General Meeting held in April 2003 the Company was granted authority to purchase up to 12,662,824 ordinary shares (equivalent to 14.99% of its issued share capital at that date). No ordinary shares were bought back during the year and therefore at 31 December 2003 the Company's authority to buy back shares remained unchanged at 12,662,824. HERALD INVESTMENT TRUST plc NOTES (Cont'd) 7. The financial statements for the year to 31 December 2003 have been prepared on the basis of the accounting policies set out in the Company's financial statements at 31 December 2002. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2003. The financial information for 2002 is derived from the statutory accounts for 2002 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2002 accounts, their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2003 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock Exchange

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